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The Financial Planner’s Role in Estate Planning

The Financial Planner’s Role in Estate Planning

Five issues to keep in mind

After practicing financial planning for almost 25 years, I’ve learned that having estate-planning documents doesn’t always mean the estate planning goals are being accomplished. Usually, this is a result of not clarifying objectives before legal documents are drafted. To implement solid plans on behalf of your client, here are five issues to keep in mind.


Unnecessary Death Tax

One of the most important things for a planner to check in this area is if a married couple is properly using a credit shelter trust when their assets exceed the estate death tax exclusion amount, which next year may be $1 million (if Congress doesn’t act). While the unlimited marital deduction protects widowed spouses when assets are passed, advisors need to keep later generations in mind. By working with a client in advance and recognizing potential asset challenges that come with death tax, advisors can use a credit shelter trust and protect heirs from future tax bombs on the state and federal level.


Unnecessary Probate Costs

 Many experts claim that the average U.S. probate cost is 6 percent of the gross estate. This means it’s a percent of the assets, regardless of what the liabilities are. This can create unnecessary expenses, especially where leveraged property is involved. The most common thing that leads to probate is the titling of non-retirement assets with either a single name or joint tenancy. With such titling, when the last account owner dies, typically those assets will go through probate.

Financial planners should be aware of such issues and make sure to point out potential titling problems. Be sure to pass the client to an attorney, who would then very likely draft a revocable living trust to make sure assets are properly re-titled.


Properly Titled Retirement Account Beneficiaries

This is an area that’s often overlooked when an estate plan is drafted. According to a number of recent studies, less than 40 percent of retirement accounts use secondary beneficiaries. In this type of a situation, if the primary beneficiary pre-deceased the retirement plan owner and the beneficiaries weren’t updated, which is often the case, those assets would be subject to probate before they would go to the heirs.

Also, there are at least five common types of beneficiaries that can be used on a retirement account:  a spouse, children, a charity, a trust or a non-family member. The rules for each group are different and, therefore, require altered strategies to minimize unnecessary costs and potentially wasted time for heirs.


Assets in Other States

Make sure that all assets owned in other states are using the correct legal documents to insure those assets will get to the right heirs in a timely manner. Trusts are valid under state law, not federal law. If an individual drafts the trust in the state he lives in and he titles property owned in other states into that trust, the trust may be invalid because of different state laws and, therefore, subject the property to probate. It’s not the job of the planner to decipher all the state laws, but to identify the problem and get the client to an estate-planning attorney familiar with a particular state’s laws.


Partnership Between Planner and Attorney

Recognize the value in a strong partnership between financial planner and estate planning attorney.  It’s vital that clients have not only a strong estate plan, but have their finances secured as well. Financial planners and advisors should work hand in hand with estate-planning attorneys in certain areas, as it’s beneficial to the client’s financial wellbeing. Often, attorneys may be reluctant to refer clients to a financial planning firm, due to lack of relationship or experience. However, when determining which financial firm to partner with, attorneys should:

o   Check a financial planner’s background to make sure he has a legitimate designation, such as a ChFC or CFP.

o   Make sure the planner has at least five years of experience.

o   Make sure the average assets under management for each planner is at least $50 million, to ensure reasonable assurance that the firm’s service is in demand.


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